This smaller tablet will compete with Apple's iPad mini and the Google Nexus 7. It is expected to go into mass production later this year and will compete directly with Apple's iPad mini and the popular Google Nexus 7 tablet.

The 7in Surface tablet is likely to have a display with a resolution of 1024x768. Earlier this week, Microsoft lowered its minimal screen resolution requirement for Windows 8 certification from 1366x768 to 1024x768 pixels, effectively allowing Windows 8 tablets with smaller screens.

While not revealing any sources for the news besides "people familiar with the company's plans", The Wall Street Journal claims Microsoft has realised it needs a Surface product to compete with smaller tablet devices running rival platforms.

The report claims that 7in tablets weren't part of the Microsoft's strategy last year, but management executives recently realised the rising popularity of smaller tablets.